Is It The Best of Times or The Worst of Times?

Highlights

Global economic growth looks broad-based and strong. The critical question is whether the world is at last ready to be weaned off monetary policy stimulus, or will the process be waylaid, or derailed, by the United States’ escalating trade disputes with China, Canada, Mexico and the EU.

After a stellar 2017, the Canadian economy is expected to grow at or slightly above potential over the next two years. Capacity pressures and labour shortages are pervasive outside of oil-producing regions and are putting upward pressure on wages and inflation. However, global trade tensions could undermine Canada’s medium-term prospects.The British Columbia economy is operating above its capacity. Labour scarcity is holding back job growth. BC has the highest job vacancy rate in Canada, and growth in average hourly wages is nearly three times the rate of inflation.

The apparent end of the real estate boom is likely to see a downshift in BC’s economic growth rate after a blistering 2017. Going forward, the improving global economy and firm commodity prices will support BC’s growth, albeit with greater uncertainty due to US trade policies. The weaker Canadian dollar will also provide some support.

Two multi-billion-dollar capital projects (LNG Canada and the Trans Mountain pipeline) present upside risks to the BC outlook. Given the economy’s sensitivity to trade and real estate, the main downside risks are disorder in global trade and turbulence in domestic real estate and credit markets in the context of tightening global monetary conditions.